1.	Corporate information

(a)

Information

Mechel PAO (“Mechel”, formerly — Mechel OAO and Mechel Steel Group OAO) was incorporated on March 19, 2003, under the laws of the Russian Federation in connection with a reorganization to serve as a holding company for various steel and mining companies owned by two individual shareholders (the “Controlling Shareholders”). During 2006, one of the Controlling Shareholders sold all his Mechel’s stock to the other Controlling Shareholder, Igor V. Zyuzin. Igor V. Zyuzin with his family members is the ultimate controlling party. In accordance with the changes in the Civil Code of the Russian Federation Mechel has registered changes in its Charter on March 17, 2016 and changed its name from Mechel OAO to Mechel PAO. The registered office is located at Krasnoarmeyskaya St. 1, Moscow, 125167, Russian Federation. Mechel and its subsidiaries are collectively referred to herein as the “Group”. Set forth below is a summary of the Group’s primary subsidiaries:

Name of subsidiary

Registered in

Core business

Date control
acquired / date of
incorporation (*)

Interest in voting stock held
by the Group at
December 31, 2018

Southern Kuzbass Coal
Company (SKCC)

Russia

Coal mining

January 1999

99.1

Chelyabinsk Metallurgical Plant (CMP)

Russia

Steel products

December 2001

94.2

Vyartsilya Metal Products Plant (VMPP)

Russia

Steel products

May 2002

93.3

Beloretsk Metallurgical Plant (BMP)

Russia

Steel products

June 2002

94.8

Urals Stampings Plant (USP)

Russia

Steel products

April 2003

93.8

Korshunov Mining Plant (KMP)

Russia

Iron ore mining

October 2003

90.0

Mechel Nemunas (MN)

Lithuania

Steel products

October 2003

100.0

Mechel Energo

Russia

Power generation
and sale

February 2004

100.0

Port Posiet

Russia

Transshipment

February 2004

97.8

Izhstal

Russia

Steel products

May 2004

90.0

Port Kambarka

Russia

Transshipment

April 2005

90.4

Mechel Service

Russia

Trading

May 2005

100.0

Mechel Coke

Russia

Coke production

June 2006

100.0

Moscow Coke and Gas Plant (Moskoks)

Russia

Coke production

October 2006

99.5

Southern Kuzbass Power Plant (SKPP)

Russia

Power
generation

April 2007

98.3

Kuzbass Power Sales Company (KPSC)

Russia

Electricity
distribution

June 2007

72.1

Bratsk Ferroalloy Plant (BFP)

Russia

Ferrosilicon
production

August 2007

100.0

Yakutugol

Russia

Coal mining

October 2007

100.0

Port Temryuk

Russia

Transshipment

March 2008

100.0

Mechel Carbon AG

Switzerland

Trading

April 2008

100.0

HBL Holding GmbH (HBL)

Germany

Trading

September 2008

100.0

Mechel Service Stahlhandel Austria GmbH and its subsidiaries

Austria

Trading

September 2012

100.0

Elgaugol

Russia

Coal mining

August 2013

51.0

%**

Elga-road

Russia

Railroad
transportation

January 2016

51.0

%**

*	Date, when a control interest was acquired or a new company established.

In 2016, the Group sold 49% stakes in Elgaugol and Elga-road to Gazprombank. Simultaneously with this transaction, the Group granted to Gazprombank a put option to sell 49% stakes in these companies to the Group. The transaction in fact represents a financial liability, and these entities are consolidated based on 100% ownership (Notes 6 and 11.4).

(b)

Business

The Group operates in three business segments: steel (comprising steel and steel products), mining (comprising coal, iron ore and coke) and power (comprising electricity (generation and transportation) and heat power generation), and conducts operations in Russia, the CIS countries, Europe and Asia Pacific. The Group sells its products within Russia and foreign markets. Through acquisitions, the Group has added various businesses to explore new opportunities and build an integrated Group of steel, mining, ferroalloy and power companies. The Group operates in a highly competitive and cyclical industry; any local or global downturn in the industries may have an adverse effect on the Group’s results of operations and financial condition. While the Group will utilize funds from operations, it expects to continue to rely on operating cash flow and long term debt to finance major investment projects, focus on restructuring of the loan portfolio and other financing sources for its capital needs. As discussed in Notes 4 and 5, management believes that the Group will secure adequate financing.

(c)

Authorisation for issuance

These consolidated financial statements as of December 31, 2018 and for the year then ended were authorised for issuance on March 21, 2019.